Atlantic Blog

Homeowners can't help but do a little dance every time property values increase. What's not to love? Higher values create more equity for homeowners. Sellers can pocket even more cash. And investors enjoy a nice boost to their net worth.  

Among all these positives, one may wonder if there are any downsides to rising home values. While the financial benefits largely outshine any drawbacks, there are things homeowners need to consider.  

The following article sheds light on areas homeowners might overlook as property values increase – including some things that could impact their finances in the short term. 

Homeowner’s Insurance 

Fluctuations in your home's value are commonplace. Sudden jumps or dips likely do not warrant a change in your homeowner's insurance policy. However, reviewing your coverage is wise if prices have been rising steadily for two or more years.  

Don't wait for disaster to strike – keep your home protected from the unexpected by staying on top of its insurance policy! Many insurance companies automatically adjust coverage yearly, but ensuring it matches your home's value is essential. Get your free, no obligation Home Insurance review today. 

Property Taxes 

While property taxes are handled differently depending on where you live, most cities and counties reassess property values annually. If your home's value increases, you could encounter a larger tax bill in the coming year. Fortunately, many places restrict how much property taxes can increase per year. 

Property taxes are usually escrowed. That means the amount due is broken up and evenly added to your monthly mortgage payments. So, a jump in property taxes could result in higher monthly mortgage payments.  

Home Equity 

A significant perk of being a homeowner is building equity in your property. As home values climb, that equity likewise increases – providing homeowners with additional funds for projects like home upgrades or paying off high-interest debt.  

Home Equity = Home’s Appraisal Value – Amount Owed 

Unlocking the hidden wealth of your home can seem like a no-brainer, but it pays to think twice before tapping into that valuable equity. For example, if the property value increase is temporary, you could borrow more of your equity than anticipated. Most lenders understand this and will stop you from being too spendthrift with their maximum percentage limits on borrowing against equity. So, factor in potential dips and peaks when assessing how much cash you're ready (or not) to access. For many people, a home equity loan is widely beneficial to help with their financial situation or relief; talk with an Atlantic Mortgage Loan Originator to see if it's a good choice for you! 

Closing Costs 

Many homeowners will use rising property values as an opportunity to sell their house and pocket a larger sum of money. It's an excellent strategy for retirees looking to downsize their homes.  

The challenge can arise when a homeowner wants to sell their house and upgrade to a larger one. First, they will encounter higher seller closing costs. Then, they will pay more toward buyer closing costs on their new home. 

Before purchasing a home in a rising value environment, determine if the gains from selling your current home will offset the new property's higher closing costs and sale price. 

Refinancing 

Refinancing with your trusted lender may mean little to no impact on the loan, regardless of property value increases! But if you're looking to switch lenders, beware that this could come at a higher cost.  

For example, prepaid items like property taxes or homeowner's insurance could increase if the value is reassessed during closing. Always ask your lender about the impact of rising home values before starting the refinance process. 

Maintenance 

Anytime your home's value increases, you should work to retain that value. You can also consider a home improvement loan. Similar to home equity loans, you borrow value from your home to be able to make upgrades as you need them. Keeping up with repairs and maintenance is a perfect way to maximize your potential profits. If you take advantage of the higher property values and sell, a well-maintained home could yield more money later. 

Net Worth 

Regarding your net worth, never count your chickens before they hatch. Sure, a jump in the value of your home is an exciting sign - but remember that real estate markets constantly fluctuate! Keep track and be thoughtful about what may be around the corner—it could save you from retirement mistake. 

While an increase in value and equity is nice, that money isn't realized until you sell the property. You can use the value as a benchmark; however, you should always speak with a financial advisor before changing your retirement or savings plans. 

Overall 

Homeownership can be stressful; however, staying up to date on your knowledge of its upkeep is essential when the value rises. With these reminders outlined today, you can stay ahead of the curve and ensure you are fully covered for what the future has in store. We are here to help you do better! Please stop by any of our branch locations, call us, or try out our video banking for any questions on the loans and services we can provide. 

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This publication is distributed for educational purposes with the understanding that the authors are not engaged in providing legal or financial advice. The authors assume no legal responsibility for the completeness or accuracy of the published contents.